Renowned gold bull Peter Schiff warns that the sell-off in US Treasury bonds is far from over. As borrowing costs climb to a 24-year high, Washington may eventually be forced to restructure its debt by paying back creditors 50 cents for every dollar owed. He also argues that the current rise in yields is not bearish for gold; instead, it is “the most bullish thing” for gold and silver prices.
In an interview with Kitco News host Jeremy Szafron, Schiff said the market is undergoing a deeper bear market in bonds. During the US Treasury’s $39 billion 10-year note auction on Wednesday, the 10-year Treasury yield briefly hit 5.35%, the highest level since 2002, before retreating after the auction. Meanwhile, the average rate on 30-year fixed US mortgages rose to 7.49% in the week ending October 2, hitting the highest level since November 2023.
He believes this pressure is not a short-term swing but the start of a long-term trend. The Fed’s September rate hike, its first since 2023, has further pushed up financing costs. Schiff states bluntly that the US government is now “the troubled borrower,” rather than the private sector that needed rescuing during the 2008 financial crisis.
The Bond Bear Market May Have Just Begun
Schiff says the 40-year bull market in bonds ended in 2020 and 2021. Over past decades, Freddie Mac data shows the average 30-year mortgage rate fell from 18.63% in October 1981 to 2.65% in January 2021, yet the future trend may reverse completely. He expects the bond market to enter a structural bear market lasting at least 20 years, with rates “potentially rising faster than they fell previously.”
In his view, the housing market will feel the impact first. He forecasts that 30-year mortgage rates could climb to 9% by the first quarter of next year, while national home prices may drop by 30% to 50%, a decline “as large or even larger than that seen in 2007 and 2008.” He also notes that homeowners could refinance and extract home equity for cash in past decades, but this model is finished. “Refinancing is dead, home equity extraction is over,” and real estate is no longer a lifeline on household balance sheets.
The US Faces a Potential "Stealth Default"
Schiff describes America’s current predicament as what he calls “Quadrant Four”: high debt alongside high interest rates. The massive debt burden was sustainable in the low-rate era, but that premise no longer holds. He argues the US has only two paths: either “default stealthily” via inflation, or restructure debt directly.
“I think there is a pretty good chance the government defaults,” Schiff said. “The more likely scenario is restructuring, meaning telling creditors: alright, you get back 50 cents.” Data from the Congressional Budget Office (CBO) shows net interest expenses on federal debt are already close to $1 trillion per year. Schiff projects that as old debt is refinanced at higher interest rates, this figure could rise to $3 trillion to $4 trillion within several years.
He also criticizes the US Treasury’s buyback operations. The Treasury plans to repurchase up to $6 billion of bonds maturing between 2047 and 2056 on Thursday. Schiff says this resembles Operation Twist — reducing long-dated debt while increASIng issuance of short-term bills — a move that could backfire if interest rates keep rising in the future.
Gold and Silver May Benefit
Amid soaring yields, gold fell nearly $100 per ounce from its intraday low on Wednesday. At the time of the interview, spot gold hovered near $4100 per ounce, sharply down from its record high above $5500 hit in January. Conventional wisdom holds that rising bond yields erode the appeal of non-yielding gold, but Schiff believes the market has misunderstood the logic.
“This is the most bullish thing for gold and silver, because rising bond yields mean bond prices are collapsing,” he said. “Bond investors are losing money. If they want to stop losing money, they have to sell bonds. So what are they going to buy with the proceeds? Gold or silver.”
He attributes gold’s recent pullback to trading algorithms automatically selling gold when rates rise, calling it “garbage in, garbage out.” Schiff also mentions that rates and gold rose in tandem during the 1970s. The key is not whether rates rise, but whether rates can outpace inflation. “What if rates go to 20%, but inflation is 30%?” he asks rhetorically. “I would rather hold gold with no yield than take a 30% loss.”
He thinks global central banks have not been deterred by gold price volatility. China’s central bank added roughly 23 tonnes of gold in September, marking the 23rd consecutive month of purchases. World Gold Council data shows global central banks made net purchases of 39 tonnes of gold in August. Meanwhile, Russia’s central bank sold 56 tonnes of gold this year. Schiff says this proves gold can serve as usable reserve assets during wartime: “It is a reserve you can actually deploy.”
He expects sellers will eventually be exhausted, and gold will become “the last safe haven standing.” Attendees at this week’s London Bullion Market Association annual conference project gold could approach $5000 per ounce in one year. Schiff believes gold may hit that level even sooner. He adds that another crisis similar to the collapse of Silicon Valley Bank and Signature Bank in 2023 could act as a catalyst for the next gold rally, as the Fed typically halts tightening once “something breaks.”
Turning to silver, Schiff says silver prices have stabilized near $60 per ounce, well above the $50 double-top zone that could not be broken in both 1980 and 2011. He argues $125 per ounce is not the peak of this cycle, merely an “initial breakout level,” with much more upside in the next rally.
US Dollar, AI and Personal Asset Allocation
Schiff is also bearish on the US dollar. He states fiat currencies all depreciate, just at different speeds. Although the US dollar has climbed close to its yearly high this week on safe-haven demand, he expects the dollar will ultimately depreciate faster than many other currencies and lose its status as the global reserve currency.
On personal asset allocation, Schiff reveals he puts “much, much more” of his personal capital into mining stocks rather than physical gold, because he wants to hold “gold still buried underground.” He prefers royalty companies and small-cap miners, arguing small miners will lead the next rally, and this bull run “hasn’t really started yet.”
For ordinary savers, he says holding US bond funds is a “bad choice,” while cash is better kept in money market instruments. He even offers direct practical advice: stock up on next year’s groceries right now, especially non-perishable goods, and store them in cabinets, basements or closets. If those goods rise 10% to 20% in price next year, buying in advance delivers an equivalent “tax-free return” of 10% to 20%. A New York Fed survey released Wednesday shows US consumers expect inflation of 3.9% over the next 12 months, the highest reading since May 2023. Schiff thinks this expectation remains too low.
He also views the AI investment boom as one factor pushing interest rates higher. Schiff says large tech firms used to hold cash and buy US Treasury bonds in the past, effectively lending money to the government. Today those companies are borrowing capital and competing with the government for funds. The Fed’s September meeting minutes also noted market commentary that “massive private debt issuance competing for capital” to finance AI infrastructure is one driver of higher Treasury yields.
Still, Schiff admits AI investment may offer an “escape route”: if this wave of investment lifts productivity dramatically, the economy may get a “get out of jail free card.” Yet he cannot tell whether the probability is 10% or 20%. “You have a ticking time bomb in front of you, and I don’t know when it will explode.”
Auction Demand Remains, Risks PeRSIst
Despite pressure in the bond market, Wednesday’s 10-year Treasury auction did not lack buyers. Primary dealers, who absorb leftover supply, ended up holding only 2.5% of the bonds, far below the average of 9.4%. BMO described the auction as “strong.” Even so, the auction yield of 5.3% remains the highest since 2000.
The Fed’s September meeting minutes show policymakers voted unanimously to raise rates to a range of 3.75% to 4%, and “most participants” believed one more rate hike within the year would likely be appropriate. Meanwhile, the Kalshi prediction market priced the probability of another rate hike this year at nearly 78% this week.
When facing debt pressure, Schiff’s solution is to restructure early, rather than promising creditors full repayment first and then letting inflation dilute the real value down to 20 cents. “What if we just say we won’t create inflation, but we will give you 50 cents on the dollar?” he said. “That is genuine 50 cents, which is better than receiving a dollar that is only worth 20 cents.”